Are you interested in knowing the difference between Proof of Work and Proof of stake? If yes, then you’ve come to the right place. To start with, both the Proof of Work and Proof of Stake are the consensus mechanisms required to confirm transactions taking place on a blockchain. We can all agree; cryptocurrency mining can be very energy-intensive. To radically reduce the carbon footprint of the blockchain, the Ethereum community came up with the POS mechanism as an alternative to Proof of Work.
In this guide, we will delve more into the basics of each model. Further, we will talk about how each technology works and how people can make money from these consensus models. So, without further ado, let’s dive in!
What is Proof of Work?
The idea of Proof of Work has existed for quite some time now. However, it was popularized by Satoshi Nakamoto. The first significant implementation of the Proof of Work consensus protocol was the Bitcoin blockchain. PoW seemed like the most reliable blockchain consensus method. Essentially, PoW made it possible to realize the dream of a decentralized network and ruled out intermediaries in transactions. However, as the blockchain size grew, the loopholes in this consensus mechanism became more visible. At some point, it has been almost impossible to tackle the shortcomings of the PoW mechanism.
How does PoW Work?
Miners in PoW have to solve cryptographic puzzles to validate transactions. It’s almost like a race, and the first one to solve this complex mathematical puzzle gets rewarded the hash. That means, for every transaction a miner validates, they are rewarded with the transaction fee a well as the native crypto of that blockchain.
The fact that these mathematical puzzles are immensely complex, they often require massive computational power to solve. Essentially, we can summarize the Proof of Work protocol as follows; first, a new transaction is broadcasted to the blockchain network. Miners compute the hash value to match the transaction where the first miner to solve the hash is rewarded. Once a transaction is concluded, a new block is added to the blockchain.
The new hash values always contain a part of the previous transaction. That comes in handy in PoW protocols as it prevents double-spending and prevents the miners from validating fraudulent transactions. Currently, the Bitcoin network is capable of mining one block of transactions every 10 minutes. All in all, specific alterations have been made to the Bitcoin blockchain, now allowing Ethereum to complete transactions in less than 16 seconds.
What is Proof of Stake?
The blockchain community has been looking for a new and more beneficial way to establish consensus, especially after facing Bitcoin’s PoW protocol problems. That’s where the idea of Proof of Stake comes in. Currently, the Ethereum community is working hard to make the PoS protocol mainstream in the blockchain world.
PoS is meant to do away with the problems that users encounter with the Proof of Work protocol. When it comes to PoS, currency power is used in place of computational power. Currency power relies on the number of tokens a node has in its wallet. In essence, nodes' ability to validate transactions on the network depends a lot on their stake in the network.
It’s crucial to note that in the PoS consensus protocol, there are no miners. Instead, in this case, we have forgers and validators. That’s because, in PoS, we have only transaction fees; there are no block rewards like in PoW protocols. Also, with PoS, there is no mining of new coins. Instead, creators produce the coins when the network is being launched. That means the number of coins is fixed, never to change.
How Does the Proof of Stake Consensus Protocol Work?
As we mentioned earlier, miners have to race towards being the first validator when it comes to Proof of Work. However, things are a bit different in the Proof of Stake consensus. That’s because a validator is always randomly chosen depending on how much stake they have on the network.
That means, if your stake on the network is only 10%, you only can validate the same percentage of the blockchain network. Proof of Stake will bring forth validator pools that nodes can join anytime. The validators of certain transactions will be mostly chosen from these pools. Since we still have to uphold the dynamics of decentralization, there won’t be any validators prioritized over others in the selection process. And now that we know the difference between the Proof of Work and Proof of Stake consensus protocol, we will discuss which of the two is better and why in the next section.
Proof of Work Vs Proof of Stake
In the Proof of Stake system, network validators don’t have to use heavy computing power. That’s because the only factor that influences their ability to validate the network is the number of coins they have staked on the network.
That means a possible switch from the current Proof of Work mechanism to Proof of Stake will bring forth certain advantages. That includes; a safer network as PoS makes attacks more expensive. Also, PoS will be more energy efficient. The 51% attack is virtually impossible in the PoS system. A node must own 51% of Ether, the native crypto of the Ethereum network, to attack the network. And as we all know, that would take billions of dollars.
It’s almost impossible for one person to buy that much Ether. But if someone indeed does try to do so, demand will be higher than supply in the market. That means the price of the tokens will rise. On the other hand, if you already have a 51% stake in the network, it would be unwise to attack the network. When the security of the network is compromised, the tokens will lose there value. That means the value of your wealth will reduce as well.
Ethereum’s version of Proof of Stake is known as Casper. It is expected that Casper will bring new and lasting changes to the blockchain world. That’s by eliminating the shortcomings of the Proof of Work mechanism and opening up new horizons for blockchain technology. There is no denying, PoS has its vulnerabilities. All in all, the advantages that PoS brings to the table surpass what Proof of Work has been able to offer to the blockchain community so far.